FCC sees growth opportunity for processed food exports

Some of Canada’s biggest agricultural commodity exports have lots of room to grow — as processed food products, Farm Credit Canada says.

Processed food products are an area where Canadian exports lag compared to bulk raw commodity exports, but there are areas in which there is good and growing demand for what Canada produces.

“Canada has long been a major exporter of both agricultural commodities and food, yet in some ways Canada’s position in global food exports indicates opportunity for growth,” says the FCC’s Trade Rankings Report 2020, released in mid-November.

“In 2019, Canada ranked fifth among global commodity exporters and 11th in (processed) food. Include beverages and Canada’s position drops to 12th.”

FCC also thinks Canada can reduce its overreliance upon the United States and China by expanding sales to new markets, even though that brings a set of challenges.

The report focuses on five key food exports that could increase, and fortunately for prairie farmers, four of them are western mainstays: canola oil, processed beef, processed pork, and potato products. The fifth is prepared crab.

These food products are in areas FCC believes have growing world demand and in which Canada has an edge in production.

“Canada’s competitive advantages in agriculture and food production are still very relevant: abundant natural resources, productivity, innovative entrepreneurs and a stellar food safety reputation.”

Canola oil

Canola oil is already an area in which Canada excels and dominates, accounting for 44.9 percent of world imports in 2019. However, world vegetable oil demand is growing and there is no reason canola can’t move into areas now dominated by other oils, such as palm.

“The EU also announced a 2020 ban on palm oil due to deforestation concerns, phasing it out by 2030. This could open the doors for Canadian canola oil,” says the report.

Processed pork

With “prepared or preserved pork,” FCC thinks that some nations in the European Union could be targeted for sales expansion.

“Markets with the greatest potential for Canada to diversify future prepared or preserved pork exports are European countries: Italy, France, Germany, Belgium or Poland.”

Potato products

Canada’s share of world potato trade has fallen in recent years, with a reliance on the U.S. market growing even more profound, but FCC thinks Canada could export more to other markets.

“The expansion of the western diet globally has increased demand for french fries and potato products, which is good news for Canadian producers.”

The United Kingdom and EU nations provide fertile grounds for more sales.

“Concerns around low potato prices in Europe can lead to fewer planted acres and open the door to Canadian potato products.”

Processed beef

World demand for processed beef has soared in recent years. FCC thinks both the EU and China offer potential for boosting exports to those big beef-eating markets.

There is a chance to diversify beef markets where there is demand growth.

“Canada also has free trade agreements with some of the fastest growing importers,” says the report.

“Agreements are in place for Vietnam, Israel, Chile, Portugal, Austria, (Czech Republic), with negotiations with the (United Arab Emirates) occurring.”

Challenges

It won’t necessarily be easy to achieve these gains. The EU, for instance, has many non-tariff trade barriers that stymie sales.

And market diversification faces economic challenges. Selling to gigantic, existing markets like the U.S. and China can be the most efficient approach. They can also be the best-paying.

The pandemic impact also clouds the outlook for sales growth.

To mitigate the challenges, FCC thinks processors and exporters need to identify specific niche markets, like the Asian markets that value the offal that provide little value for beef in North America.

It also believes exports could grow if more companies make exports a bigger share of their production and sales, even if that might mean more reliance on the U.S. market at first.

“Research… shows that high export intensity… is necessary for diversification,” says the report.

“In other words, businesses need to start exporting to a few destinations before being able to successfully diversify. We may expect small- and medium-sized businesses to focus first on the U.S. market before developing sales elsewhere.”

Right now it’s hard to know what the overall outlook is for global trade. A few years of increasing protectionism around the world and the disruption and economic chaos of COVID-19 muddy the situation.

“Underlying all of that is increasing competition among exporters jockeying for their own advantage,” says FCC.

“That will not pose a problem, but only if Canada can continue to count amongst the strongest in that field.”

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